It is now time to recommend that West Pharmaceutical Services (WST) be sold at the market. The stock has performed moderately since the Investment Observation was issued on October 17, 2010. It is highly recommended that anyone who bought the stock based on our insight should re-read the posting. For the most part, West Pharmaceutical (WST) retained the recommended market price and moved higher from there.
In the pursuit of "seeking fair profits" the returns that this stock has provided within the last 55 days say that it is necessary to consider alternative opportunities. The key to investment success and a key principle of economics is to seek the best alternatives.
West Pharmaceutical (WST) was recommended when it closed at $35.97 on October 18, 2010. Based on the most recent closing price, WST has gained 10.06% (from the $36 price.)
The annualized return on this position would be close to 60%. Selling this stock now generates a return of 5.29x greater than the amount of the dividend yield if held for a full year. Additionally, the 10.06% gain exceeds the return on a 30-year treasury purchased on October 18, 2010 by 2.56x.
Those not interested in following through with our sell recommendation can feel comfortable knowing that West Pharmaceutical (WST) is a great long-term holding with a 10.06% downside cushion since our investment observation. As the price of WST rises, it should be noted that the stock faces significant upside resistance at $44 and $52. The current strong interest in Beckman Coulter (BEC) (article link) will provide significant support of West Pharmaceutical (WST) for the next couple of weeks.
As we have indicated in the purposes and function of this site, our goal is to:
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Maximize the annual yield of each trade.
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Reduce the time between buying and selling of each stock.
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Exceed the annual yield of government guaranteed alternatives in each trade.
Investment Observations are intended to be a starting point for investigating a quality company at a reasonable price. It is hoped that after doing the background research you can buy the stock at a lower price. Ideally the stock should be held in a tax-deferred account and should not consist of less than 20% of your holdings. Personally, we prefer holding only 2-3 stocks at a time.
For a portfolio of $10,000 with a 20% position that gains 10.06%, the impact on the entire portfolio is 2.01%. This is contrasted with the same portfolio with a 5% position that gains 10.06%, the impact on the entire portfolio is 0.50%. By choosing generally conservative dividend increasing stocks at or near a new low, the odds of success are increased in your favor making the assumed increase in risk worthwhile.
Sell Recommendations are intended to deal with the short-term reality of the market. The tracking of the Sell Recommendations are the worst case scenario if you happen to have bought a stock at the time the Investment Observation was made. We aim for modest returns, therefore we are happy with 9-12% annualized gains.
It is always recommended that when selling a stock, one should not place stop orders, limit orders or orders after hours as detailed in our article "Automatic Orders Don't Provide Protection." This leaves the seller in the position of being vulnerable to the whims of the market makers. Instead, place your sell orders only as a market order during market hours. Some would complain that a market order during market hours might leave some profits on the table. However, we would rather leave some money on the table rather than have it taken away from us by the trades that are placed by institutions and market makers.
